"Accounting Sleuths Profit From Corporate Wrong-Doing
Michael Kessler was hired by Monsanto Co. to track down a sweetener counterfeiting ring. Fake packages of Equal, the St. Louis-based Monsanto's sugar substitute, were showing up in stores from Minnesota to South Carolina. The 49-year-old forensic accountant uncovered a clue to the source not in the ledger books but in the trash. Staking out Haskel Trading Co. in Brooklyn, New York, he found bogus boxes of
Equal buried amid crates and cardboard in a bin outside.
Such sleuthing is a booming business for Kessler and other
forensic accountants, who charge about $300 an hour for
investigative work, a third more than for audits. They're riding
a wave of corporate crime from cooked books and hacked computers
to infringed copyrights and old-fashioned theft.
``This is without doubt one of the fastest-growing areas of
our practice,' said Frank Piantidosi, head of the investigative
group at Deloitte & Touche.
Fraud of all types cost U.S. companies more than $400
billion last year, reports the Association of Certified Fraud
Examiners. Investors sued 235 corporations for securities fraud
in 1998 -- a record number -- according to the Stanford
Securities Class Action Clearing House at Stanford Law School.
Bank of New York Co. says it has hired investigators from
the accounting firm KPMG LLP to determine whether a Russian crime
syndicate laundered as much as $10 billion through the bank, as
U.S. law enforcement officials allege.
The Frankel Files
And for months, scores of accountants have combed documents
at six insurance companies for clues to hundreds of millions of
dollars that vanished with Martin Frankel, according to state
regulators. German police captured the money manager in Hamburg
in September after an global manhunt, but investigators still
don't know how much money is missing, let alone where it is.
Big Five accounting firms like Arthur Andersen LLC, Deloitte
& Touche and KPMG are expanding their forensic businesses, units
that are often part of what executives call ``litigation support
services' or ``dispute resolution.'
Deloitte has added at least 75 people to its investigative
unit, including more than two dozen former agents of the Federal
Bureau of Investigation, the Central Intelligence Agency, federal
prosecutors and Royal Canadian Mounted Police. At KPMG, the New
York forensic practice has grown from four to 90 people in the
past five years.
In the past, forensic accountants were little more than
glorified insurance examiners. An insurer might, for example,
hire an outside investigator to value a factory flooded by
Hurricane Floyd.
Now the sleuths are landing work because more companies are
suing each other, or being sued by their shareholders.
Most Sued
Cendant Corp., formed in 1997 by the merger of CUC
International Inc. and HFS Inc., held the ``dubious honor' of
being the most frequently sued company last year, according to
the Stanford Law School study, published in January. The
franchising and discount-shopping company, based in Parsipanny,
New Jersey, was the defendant in at least 70 class-action
complaints.
The suits alleged that former CUC executives booked
fictional revenue and used money set aside for merger-related
expenses for other things. Cendant itself sued the accounting
firm Ernst & Young LLP for certifying allegedly false financial
statements from CUC.
``Blame the lawyers,' says Steven Bankler, the
investigative accountant for the U.S. Senate Whitewater
Committee. ``We're a litigious society, and that is a big reason
why forensic accounting is a boom business.'
Bankler isn't complaining. His San Antonio, Texas, firm
charges $300 an hour. He says big firms often charge more.
Some accountants come to the field with specialized training
in computers. They say the ability to retrieve and secure
electronic evidence is increasingly vital to solving white-collar
crimes.
Open Access
``Ten years ago, only the geeks had access to computers,'
said Lorraine Horton, a 44-year-old investigative accountant who
teaches courses in accounting computer systems at the University
of Rhode Island. ``Now everyone has access and can hack in for
nefarious purposes.'
Stephen Silver, the partner in charge of business fraud in
the Midwest for Arthur Andersen, said he hires people from the
FBI, state police forces or district attorneys offices. ``You've
got to have experience with wrong-doing,' he says.
Spotting clues is a knack some experts say can't be taught.
That is especially true with some accountants, trained to believe
that numbers don't lie.
``Auditing is about following the rules,' says Horton. ``In
forensic accounting there are no rules -- anything is possible.'
It was a lesson Mike Kessler learned while investigating
tax fraud, government corruption and organized crime in New York.
Variety of Jobs
A beefy Brooklyn native standing well over six feet, he's
worked as the director of the New York State Revenue Crimes
Bureau, deputy inspector general for the New York Metropolitan
Transportation Authority and assistant chief auditor for the New
York State Special Prosecutor. His Park Avenue firm, Michael G.
Kessler Associates, employs about 35 accountants, researchers and
private investigators.
Monsanto hired Kessler after stores began complaining in
April 1996 that their scanners couldn't read the bar codes on
some Equal boxes. The boxes turned out to be fakes.
Working from a database he keeps on people linked to product-
counterfeiting, Kessler staked out Haskel. His team snapped
dozens of photos of employees at work and gathered evidence
outside.
With a court order to seize Haskel's books, Kessler then put
on his accountant's hat. The accounts showed Haskel had been
buying Equal in 2,000-pack boxes designed for restaurants and
repackaging the sweetener into counterfeit boxes holding 50
packs, the size sold in stores, Monsanto later alleged.
Monsanto says its prices are ``proprietary information' and
won't disclose them. But the company does say that it sells Equal
cheaper in bulk than it does to stores. A 50-pack box retails for
$3.99 at Delmonico Gourmet Food Market off Park Avenue.
Big Stake
Monsanto filed a lawsuit against Haskel, saying the
wholesaler had taken advantage of the difference in prices at its
expense for five years. Monsanto has spent more than $110 million
advertising and promoting Equal since 1992, according to the
suit, so the company has a big stake in protecting its brand.
Haskel eventually settled, according to Kessler. People at
the wholesaler didn't return telephone calls seeking comment.
Not your typical accounting work. But then Kessler isn't
your typical number-cruncher. ``While accountants look at the
numbers,' he says, ``forensic accountants look behind the
numbers.' |
